Accounting Thinking for Startups, BigRedCar
January 8th 2019
I hate accounting, but I love orderly accounts. I love it when the checkbook, the bank reconciliations, the cash receipts/disbursements journals, and the balance sheet all agree. Takes a bit of sleight of hand to make that happen, but I love it.
As a startup CEO, you need to get a good handle on how accounting works. This blog post is not going to teach you accounting, but it is going to give you the Stations of the Cross as it relates to what you do from the perspective of accounting.
First, accounting can be a little time consuming and boring. As a CEO, never, ever, ever get involved with it. In your early days, hire an arm’s length bookkeeper and have them put your operation together on QuikBooks. [Pro tip: You could run the Pentagon on QuikBooks Enterprise, so don’t let anybody tell you it isn’t robust enough for your enterprise.]
Here are the Stations of the Cross as it relates to accounting.
1. Keep a single business checkbook for everything for the business. Do not ever co-mingle your money and the business’ money. Never. Ever. There legal reasons not to do this that revolve around a concept called “piercing the corporate” veil. If you commingle your personal money with the business money, you may lose the protection of the corporation’s limited personal liability. This is important.
Use QuikBooks to integrate your checking account with your accounts.
2. Same thing with a credit card. If you can’t swing this up front, it will cause a lot of confusion in the future. Keep your persona and the business separate.
Use QuikBooks to integrate your credit card with your accounts.
3. Hire an accountant to make a Chart of Accounts for your business. This determines where the income and expenses are going to be charged. You can add accounts as needed in the future.
4. Same accountant sets up your General Ledger, Income Statement, Balance Sheet, Statement of Cash Flows, General Ledger, Cash Receipts Journal, and Cash Disbursements Journal.
5. A word about the General Ledger — this is the trail of breadcrumbs that tells you where you have been. Every transaction in the history of the company will be in here. Sit down with an accountant and understand it.
6. Same accountant, get them to explain the above documents to you. Don’t become an expert, but do understand the differences amongst them. Lots of good source material on the web. Read it.
7. Once a week, send the bookkeeper all your payments (expenses, checks) and all your income. At first, there may be no income. That’s fine. Work with the bookkeeper to understand how to code each of the expenses until you can do it in your sleep. It is easy. Do this weekly so if you forget to do it or the press of your real business is such that you cannot get to it, it doesn’t pile up.
8. Every month sit down with the bookkeeper and go through your General Ledger, Cash Receipts Journal, Cash Disbursements Journal, the checkbook, your bank reconciliation, the Income Statement, the Balance Sheet, and the Statement of Cash Flows. Don’t panic, a lot of this is redundant and you will pick it up easily. The one I think is the most difficult is the Statement of Cash Flows, but you will get it. Don’t worry.
9. At year end, use the accounting system to provide the requisite inputs for your income taxes.
Wow, Big Red Car, where can I get some help?
There are three resources I recommend.
1. Get your accountant and bookkeeper to explain things to you as you go.
2. Use a “virtual CFO” company to handle some of the accounting chores such as the setup. This may be a little more expensive, but these virtual CFOs are used to the startup world. Lots of experience. Just google “virtual CFO.”
3. Use the Web to find companies like Accounting Coach.
So, there you have it, dear reader, a bit of a road map to get you into and out of the accounting chore for your startup. It’s easy.